FEDERATED INTERNATIONAL FUNDS PLC Prospectus

[Pages:98]Prospectus

1 January 2022

Federated Hermes International Funds plc

An investment company with variable capital (an umbrella fund with segregated liability between sub-funds) ______________________________________________________________________________________________________

Federated High Income Advantage Fund* Federated U.S. Total Return Bond Fund* Federated Hermes Short-Term U.S. Government Securities Fund Federated Hermes Short-Term U.S. Prime Fund Federated Short-Term U.S. Treasury Securities Fund* Federated Strategic Value Equity Fund* Federated MDT All Cap U.S. Stock Fund*

* This Fund is closed to new subscriptions and is in the process of being terminated.

CONTENTS

This Document is Important ............................... 1 How is the Company Organised? ......................... 3 Investment Information ..................................... 3 Sustainable Finance Disclosures Regulation .......... 4 Securities in Which the Funds Invest ..................17 What are the Specific Risks of Investing in the Funds?............................................................ 39 The Shares......................................................51 The Sub-Funds and Segregation of Liability .........52 Determination of Net Asset Value.......................53 How to Purchase Shares ...................................56 Payments to Financial Intermediaries .................59 How to Redeem Shares.....................................59 Account and Share Information..........................62 Conversion of Shares........................................63 Special Dealing Days ........................................64 Umbrella Cash Accounts....................................64 Temporary Suspension of Valuation of the Shares and of Sales and Redemptions ...........................64 Management and Administration ........................65 Fees and Expenses ...........................................69 Irish Taxation ..................................................70 Meetings .........................................................77 Information about the Company required under MiFID II and PRIIPs Regulation ..........................78 Reports ........................................................... 78 Winding Up .....................................................78 Negative Yield Response Measure.......................79 Conflicts of Interest ..........................................79 Best Execution.................................................79 Complaints ......................................................79 Remuneration policy of the Company..................79 Litigation......................................................... 80 Material Contracts ............................................80 Use of Name....................................................80 Supply and Inspection of Documents ..................80 Additional Information ......................................80 Information for Investors in the Federal Republic of Germany .....................................................80 Important Information for Investors in Switzerland80 Terms ............................................................. 82 Appendix A ? Part 1..........................................86 Appendix A ? Part 2..........................................89 Appendix B......................................................91 Investment Ratings ..........................................93 Addresses .......................................................96 Paying and Information Agents ..........................97

THIS DOCUMENT IS IMPORTANT

This document constitutes the Prospectus for Federated Hermes International Funds plc (the "Company") together with any Supplemental Prospectus. Any investor or prospective investor in the Company should check that this Prospectus is the most current version. This Prospectus should be read in its entirety before making an application for Shares. Certain terms used in this Prospectus are defined on pages 82 through 85.

The Directors of the Company whose names and background information appear in this Prospectus accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case) the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information.

The Company is an umbrella investment company with segregated liability between sub-funds comprising a number of sub-funds (each a "Fund" and collectively "the Funds") as described below under "How is the Company Organised?". As used herein:

? "Fixed Income Funds" refers to the following Funds: the Federated High Income Advantage Fund and Federated U.S. Total Return Bond Fund*;

? "Equity Funds" refers to the following Funds: the Federated Strategic Value Equity Fund* and Federated MDT All Cap U.S. Stock Fund*; and

? "Short-Term Money Market Funds" refers to the following Funds: the Federated Hermes Short-Term U.S. Government Securities Fund, the Federated Short-Term U.S. Treasury Securities Fund* and the Federated Hermes Short-Term U.S. Prime Fund. The Federated Hermes Short-Term U.S. Government Securities Fund and the Federated Short-Term U.S. Treasury Securities Fund are public debt CNAV MMFs and the Federated Hermes Short-Term U.S. Prime Fund is a LVNAV MMF.

Since you may be charged a redemption fee upon redeeming Shares of the Equity Funds, an investment in these Funds should be regarded as a medium-to-long-term investment.

The value of the Shares and income from them may go down as well as up, and you may not get back the amount originally invested. It is possible to lose money by investing in the Funds.

* This Fund is closed to new subscriptions and is in the process of being terminated. 1

The Short-Term Money Market Funds do not rely on external support to guarantee their liquidity or to stabilise their Net Asset Value per Share. An investment in the Short-Term Money Market Funds is not a guaranteed investment. There is a risk that Shareholders might not recover their initial investment. The value of an investment in the Short-Term Money Market Funds, in contrast to a deposit, may fluctuate. The Short-Term Money Market Funds are each assigned an external credit rating and such rating has been solicited or financed by the relevant Short-Term Money Market Fund or the Manager.

An investment in the Funds should not constitute a substantial proportion of an investment portfolio and may not be appropriate for all investors. Details of the investment objective and investment policy of each Fund are set out under "Investment Information", and a description of the risks involved is set out under "What are the Specific Risks of Investing in the Funds?".

Federated Investment Counseling is appointed as investment adviser to Federated Hermes Short-Term U.S. Government Securities Fund and Federated Hermes Short-Term U.S. Prime Fund ("FIC" or the "Adviser").

The Fixed Income Funds and Equity Funds are permitted to invest in financial derivative instruments ("FDIs") for investment purposes, as well as to use FDI for the purposes of efficient portfolio management. A risk management process has been submitted to the Central Bank in accordance with the UCITS Rules. The risk management process enables the Adviser to accurately measure, monitor and manage the various risk associated with FDIs.

The Adviser acts as investment adviser to a number of investment companies that are organised in the U.S. (the "U.S. Funds") and registered with the U.S. Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act"). Like the Short-Term Money Market Funds (except Federated Hermes Short-Term U.S. Government Securities Fund ? Investment-Growth Series), those of the U.S. Funds which are structured as money market funds seek to maintain a stable Net Asset Value (see "Determination of Net Asset Value"). In acting on behalf of such U.S. Funds, the Adviser acts in accordance with the SEC's Rule 2a-7 under the 1940 Act, which sets forth various requirements relating to matters such as the quality and maturity of portfolio investments. Many of the requirements imposed by Rule 2a-7 are similar to those set forth in the MMF Regulation. The Short-Term Money Market Funds will be managed in accordance with the MMF Regulation, in addition to the UCITS Regulations and the requirements of the Central Bank.

The distribution of this Prospectus and the offering or purchase of the Shares may be restricted in certain jurisdictions. No persons receiving a copy of this Prospectus or the application form in any such jurisdiction may treat this Prospectus or such application form as constituting an invitation to them to subscribe for Shares, nor should they in any event use such application form, unless in the relevant jurisdiction such an invitation could lawfully be made to them and such application form could lawfully be used without compliance with any registration or other legal requirements. Accordingly, this Prospectus does not constitute an offer or solicitation by anyone in any

jurisdiction in which such offer or solicitation is not lawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. It is the responsibility of any persons in possession of this Prospectus and any persons wishing to apply for Shares pursuant to this Prospectus to inform themselves of and to observe all applicable laws and regulations of any relevant jurisdiction. Prospective applicants for Shares should inform themselves as to the legal requirements of so applying and any applicable exchange control regulations and taxes in the countries of their respective citizenship, residence or domicile.

Shares are not registered under the U.S. Securities Act of 1933, as amended (the "1933 Act"), or the 1940 Act, and may not be directly or indirectly offered or sold in the U.S. or to or for the benefit of a U.S. Person, except in a transaction that is exempt from the application of U.S. federal and U.S. state securities laws. Investors applying to purchase Shares will be required to certify to the Company whether they are U.S. Persons, or are acquiring Shares on behalf of, or for the benefit of, a U.S. Person, and whether they are Irish Residents.

Shares are offered only on the basis of the information contained in the current Prospectus, key investor information documents, any country-specific supplements, and, as appropriate, the latest audited annual report and any subsequent semi-annual report. Such reports will form part of this Prospectus. Investors should note that the auditor's report on the Company's annual accounts is made only to Shareholders as a group at the date of the annual report, and the auditors do not accept liability to any other party for their report.

Any information or representation about the Shares given or made by any Financial Intermediary that is not contained in this Prospectus should be disregarded and accordingly should not be relied upon.

Statements made in this Prospectus are based on the law and practice currently in force in Ireland and are subject to changes.

The distribution of this Prospectus in some jurisdictions may require the translation of this Prospectus into the languages specified by the regulatory authorities of those jurisdictions. In case of inconsistency between the translated and the English version of this Prospectus, the English version shall prevail.

This document contains important information about the Company and the Funds and should be read carefully before investing. If you have any questions about the contents of this Prospectus or are in any doubt about the suitability of investing in Shares, you should consult your financial intermediary, stockbroker, bank manager, legal adviser, accountant or other financial adviser. We do not provide, and this Prospectus does not contain, investment advice. Potential investors are encouraged to seek appropriate advice prior to investing in Shares.

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HOW IS THE COMPANY ORGANISED?

The Company is an open-ended umbrella investment company with variable capital and with segregated liability between sub-funds, and is organised under the laws of Ireland as a public limited company pursuant to the Companies Act and the UCITS Regulations. It was incorporated on 31 December 1990 under Registration Number 168193.

The Company is a UCITS within the meaning of the UCITS Regulations and has been approved by the Central Bank in accordance with the UCITS Regulations. The authorisation of this scheme by the Central Bank shall not constitute a warranty as to the performance of the scheme and the Central Bank shall not be liable for the performance or default of the scheme. Authorisation of the UCITS is not an endorsement or guarantee of the scheme by the Central Bank nor is the Central Bank responsible for the contents of this Prospectus.

The Company is organised in the form of an umbrella fund. Its objective, as set out in Clause 3 of the Company's Memorandum of Association, is the collective investment in transferable securities and/or other liquid financial assets (referred to in Regulation 45 of the UCITS Regulations) of capital raised from the public and which operates on the basis of risk spreading. Details of the investment objective and investment policy of each Fund are set out below under "Investment Information".

The Articles of Association provide that the Company may offer separate classes of Shares representing interests in defined portfolios of securities. With the prior approval of the Central Bank, the Directors from time to time may create additional sub-funds in the Company.

The Articles of Association also provide that Shares in respect of any one sub-fund may be offered in any one or more Series. The Directors from time to time may create one or more Series by issuing classes of Shares, including hedged and unhedged currency classes, on such terms as the Directors may resolve in accordance with the requirements of the Central Bank. Classes may be established within a sub-fund which may be subject to higher/lower/no fees where applicable.

This Prospectus relates to all Series of the Company; however, each Series will be the subject of an individual key investor information document.

The manager of the Company (the "Manager") is Hermes Fund Managers Ireland Limited, which was established on 3 July 2018 in Ireland under registration number 629638, is organised under the laws of Ireland as a private company with limited liability pursuant to the Companies Act, and is authorised by the Central Bank as a UCITS management company.

The Funds and Series established as of the date of this Prospectus are set forth below.

Federated High Income Advantage Fund* Class A Shares ? USD ACC Class A Shares ? EUR ACC Class I Shares ? EUR DIS Class I Shares ? USD DIS Class I Shares ? GBP DIS Class A Shares ? EUR DIS

Federated U.S. Total Return Bond Fund* Class I Shares ? EUR DIS Class I Shares ? USD DIS Class I Shares ? GBP DIS Class A Shares ? EUR DIS

Federated Hermes Short-Term U.S. Government Securities Fund Institutional Services?Dividend Series Institutional Series Investment ? Dividend Series Investment ? Growth Series

Federated Hermes Short-Term U.S. Prime Fund Institutional Service Series Institutional Series Investment ? Dividend Series Institutional Services ? Dividend Series

Federated Short-Term U.S. Treasury Securities Fund* Institutional Series Institutional Service Series

Federated Strategic Value Equity Fund* Class A Shares ? USD DIS Class I Shares ? USD DIS

Federated MDT All Cap U.S. Stock Fund* Class A (dis) Shares ? USD

The following will accumulate income and gains arising from their portfolio investments: Federated Hermes Short-Term U.S. Government Securities Fund ? Investment Growth Series; and Federated High Income Advantage Fund ? Class A Shares ? USD ACC and Class A Shares ? EUR ACC.

INVESTMENT INFORMATION

Listed below are the Funds' investment objectives, investment policies, permitted investment techniques and instruments, and principal risks. To achieve its investment objectives, the Company or a Fund may employ techniques and instruments relating to the investments subject to the conditions and within the limits from time to time laid down by the Central Bank. While there is no assurance that a Fund will achieve its investment objective, it endeavours to do so by following the strategies and policies described in this Prospectus.

* This Fund is closed to new subscriptions and is in the process of being terminated. 3

Any change in investment objectives and/or material change in investment policies will be subject to approval by the majority of votes of Shareholders passed at a general meeting. In accordance with the Articles of Association, Shareholders will be given 21 days' notice (excluding the day of posting and the day of the meeting) of such general meeting. The notice shall specify the place, day, hour, and nature of business of such meeting, as well as the proposed effective date of any changes to the investment objectives and/or material change in investment policies. In the event that a change in investment objectives and/or material change in investment policies is approved by Shareholders, the change will become effective on the second Dealing Day following the approval of the change by Shareholders.

Certain capitalised terms used within this section of the Prospectus correspond to the securities and risks described in fuller detail under the sections entitled "Securities in Which the Funds Invest" and "What are the Specific Risks of Investing in the Funds?".

With the exception of permitted investments in unlisted securities, investments of the Funds are traded and/or listed on Regulated Markets.

the date of the prospectus the portfolios of the Funds are comprised of different investments that may change over time as a result of specific investment decisions made and accordingly the identification and assessments of risks, including sustainability risks, will take place on an investment-by-investment and country-by-country basis in accordance with the foregoing policy.

A Fund may be exposed to certain potential sustainability risks as, amongst others, reflected in the "What are the Specific Risks of Investing in the Funds?" section in the Prospectus. The relevant Adviser's assessment is that integration of sustainability risks should help mitigate the potential material negative impact of such risks on the returns of the Fund, although there can be no assurance that all such risks will be reduced, in whole or in part, nor identified prior to the date of investment.

With regard to the Funds, the investments underlying this financial product do not take into account the EU criteria for environmentally sustainable economic activities.

No consideration of adverse sustainability impacts.

SUSTAINABLE FINANCE DISCLOSURES REGULATION

Federated Hermes is a signatory to the Principles for Responsible Investment ("PRI"). The PRI is an investor initiative in partnership with the United Nations Environment Programme Finance Initiative and the United Nations Global Compact. Commitments made as a signatory to the PRI are not legally binding, but are voluntary and aspirational. They include efforts, where consistent with an Adviser's fiduciary responsibilities, to incorporate environmental, social and corporate governance ("ESG") issues into investment analysis and investment decision making.

Accordingly, as part of its security selection process, among other factors, the Adviser evaluates whether ESG factors could have a negative or positive impact on the cash flows or risk profiles of many issuers or guarantors in the universe of securities in which the Funds may invest. Securities of issuers or guarantors that may be negatively impacted by such factors may be purchased and retained by the Funds while the Funds may divest or not invest in securities of issuers that may be positively impacted by such factors depending on the degree of impact and future expectations. This process does not automatically result in excluding or screening out sectors or specific issuers but are used by Federated Hermes to improve portfolio risk/reward characteristics and prospects for long-term out-performance.

The Disclosures Regulation defines "sustainability risks" as environmental, social or governance events or conditions that, if they occur, could cause an actual or a potential material negative impact on the value of the investment. The Adviser of each Fund has integrated sustainability risks as part of its investment decision making and risk monitoring process for the Funds as more fully described on the website fiml.. The Manager or the Adviser may conduct sustainability risk-related due diligence and/or take steps to mitigate sustainability risks and preserve the value of the investment. As of

The Manager and the Adviser do not consider the principal adverse impacts of their investment decisions on sustainability factors for the time being. This is because they could not gather and/or measure all of the data on which they would be obliged by the Disclosures Regulation to report, or could not do so systematically, consistently, and at a reasonable cost to investors. In addition, the information required to assess the adverse impacts of its investment decisions on sustainability factors may not yet be fully available and/or not up to date. The Adviser's position on this matter will be reviewed at least annually by reference to market developments. Nevertheless, Federated Hermes is focused on creating long-term value for investors and they are actively investing in systems and procedures which will enable them over time to gather more and more granular data on adverse impacts of investment decisions particularly as that data becomes available in the market.

FEDERATED HIGH INCOME ADVANTAGE FUND*

Investment Objective

To provide high current income.

The Class A Shares ? USD ACC and Class A Shares ? EUR ACC will accumulate income and gains arising from their portfolio investments.

Investment Policy

The Company pursues the investment objective of the Fund by investing, under normal circumstances, primarily in a portfolio of debt securities. These debt securities are expected to be lower-rated corporate debt obligations (those rated below Investment-Grade), and some may involve equity features. Lower-rated securities are subject to certain risks as described in the section entitled "What are the Specific Risks of Investing in the Funds?".

See "Sustainable Finance Disclosures Regulation" for description of ESG and sustainability activities of the Fund.

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Profile of Typical Investor

The Fund is suitable for investors seeking high current income and a medium-term investment.

Instruments and Investment Techniques

The Fund is actively managed. The types of securities in which the Fund may invest include the following transferable securities listed or traded on Regulated Markets (the Fund may also invest in Eligible Collective Investment Schemes). While the Fund's portfolio may invest in all of the listed types of securities, it is intended that its principal holding will be below Investment-Grade corporate debt obligations, which may constitute up to 100% of the portfolio. See "Securities in Which the Funds Invest" for fuller descriptions of these securities.

? Fixed Income Securities

Corporate Debt Securities rated below InvestmentGrade, issued by U.S., non-U.S. and emerging market corporations, having fixed or floating rates of interest, as well as Investment-Grade corporate debt obligations (see "What are the Specific Risks of Investing in the Funds?" and "Investment Ratings")

Commercial Paper (the Fund may invest in commercial paper issued by banks, corporations and other borrowers)

U.S. Treasury Securities

U.S. Government Agency Securities

Treasury Inflation-Indexed Securities

Variable Rate Instruments

Variable Rate U.S. Government Securities

? Mortgage-Backed Securities

Certain Investment-Grade Collateralised Mortgage Obligations ("CMOs") and other Asset-Backed Securities

Collateralised mortgage-backed securities, issued by both U.S. government agencies and private issuers

Adjustable Rate Mortgage Securities ("ARMS")

Real Estate Mortgage Investment Conduits ("REMICs")

Resets of Interest

Caps and Floors

? Non-Mortgage Related Asset-Backed Securities

? Zero Coupon Securities

? Pay-In-Kind Securities

? Bank Instruments

Bankers' acceptances issued by a Bank Insurance Fund ("BIF")-insured bank, or issued by the bank's Edge Act subsidiary and guaranteed by the bank, with remaining maturities of nine months or less; the total acceptance of any bank held by the Fund cannot exceed 0.25% of 1% of such bank's total deposits according to the bank's last published statement of condition preceding the date of acceptance

Certificates of deposit ("CDs") in commercial or savings banks whose deposits are insured by the BIF or the Savings Association Insurance Fund ("SAIF"), including CDs issued by foreign branches of BIF-insured banks

? Convertible Securities

? Foreign Exchange Contracts

? Obligations of Foreign (non-U.S.) Governments

? General obligations of any state, territory, or possession of the United States, or their political subdivisions, which are issued by a public housing agency and backed by the full faith and credit of the United States

? Equity Securities

Common Stocks

Preferred Stocks

Interests in Limited Liability Companies

Real Estate Investment Trusts ("REITs")

Warrants

? Loan Instruments

Loan Participations

Loan Assignments

Floating Rate Loans

? Equipment Lease or Trust Certificates

? Money Market Instruments

? Eligible Collective Investment Schemes

Exchange-Traded Funds

Up to 10% of the Fund's assets may be invested in Loan Instruments and Equipment Lease or Trust Certificates. Up to 10% of the Fund's assets may be invested in REITs, including debt securities issued by REITs. Up to 5% of the Fund's assets may be invested in Warrants.

Investments of the Fund are traded primarily in U.S. Regulated Markets. The Fund currently offers two Series denominated in U.S. dollars: Class A Shares ? USD ACC and Class I Shares ? USD DIS. The Fund also currently offers three Series denominated in euro known as Class A Shares ? EUR ACC; Class I Shares ? EUR DIS; and Class A Shares ? EUR DIS. The Fund currently offers one Series denominated in pound sterling known as Class I Shares ? GBP DIS. The Fund may offer additional Series in the future which may be denominated in other currencies. Up to 100% of the Class A Shares ? EUR ACC, Class A Shares ? EUR DIS, Class I Shares ? EUR DIS and Class I Shares ? GBP DIS may be hedged to the U.S. dollar. Transactions relating to a hedged currency Series must be clearly attributable to that specific Series. A non-U.S. dollar denominated Series must not be leveraged as a result of these transactions. Costs and gains or losses associated with hedging currency risk will be borne by the Series being hedged. The creation of additional Series and/or classes will be notified to and cleared by the Central Bank in advance.

5

Due to the Fund's investment in the securities of emerging market countries and below InvestmentGrade securities, an investment in the Fund should not constitute a substantial proportion of an investment portfolio and may not be appropriate for all investors. See "Securities in Which the Funds Invest" herein for more details.

The Adviser may also employ the following investment techniques (see "Authorised Investment Techniques and Instruments" for fuller descriptions of these investment techniques) and instruments for efficient portfolio management (i.e., reduction of risk, reduction of costs, generation of additional capital or income for the Fund) or for investment purposes, subject to the conditions and within the limits from time to time laid down by the Central Bank:

? Financial Derivative Instruments

Futures Contracts

Options

- Call Options

- Put Options

Swaps

- Interest Rate Swaps

- Total Return Swaps

- Credit Default Swaps

- Currency Swaps

- Caps and Floors

? Hybrid Instruments

Credit Linked Notes

Equity Linked Notes

? Repurchase Agreements

? Reverse Repurchase Agreements

? Stocklending Agreements

? When-Issued Securities

? Delayed Delivery Securities

? Forward Commitment Securities

? Asset Coverage

Investment Risks

The types of securities in which the Fund invests are subject to a number of risks and Shareholders' attention is drawn to the following risk factors and other special considerations. The Fund's use of financial derivative instruments may result in greater fluctuations of the NAV of the Fund. This does not purport to be an exhaustive list of the risk factors relating to investment in the Fund. The Shareholders are urged to review the section entitled "What are the Specific Risks of Investing in the Funds?".

? Interest Rate Risks

? Credit Risks

? Call Risks

? Prepayment Risks

? Liquidity Risks

? Risks of Investing in Noninvestment-Grade Securities

? Risks Associated with Complex CMOs

? Risk Related to the Economy

? Currency Risks

? Risks of Investing in the Securities of Emerging Market Countries

? Risks of International Investing

? European Union and Eurozone Related Risks

? Leverage Risks

? Settlement Risk

? Stock Market Risks

? Equity Risk

? Risks Related to Company Size

? Sector Risk

? Risk of Investing in REITs

? Risk Associated with Investing Share Purchase Proceeds

? Risks of Investing in Derivative Contracts and Hybrid Instruments

? Risk of Utilising Options

? Risk of Utilising Swaps

? Investment Risk

? Umbrella Structure of the Company and Cross Liability Risk

? Risks of Investing in Eligible Collective Investment Schemes

? Risks of Government Intervention in Financial Markets

? Events Related to Freddie Mac and Fannie Mae

? LIBOR Risk

? Technology Risk

? Cyber Security Risk

See "What are the Specific Risks of Investing in the Funds?" herein for a detailed description of each risk.

The Adviser believes that the risks of investing in lowerrated securities can be reduced. The professional portfolio management techniques used by the Adviser to attempt to reduce these risks include:

Use of Benchmark

The Advisor monitors the Fund's performance relative to the Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index (the "Benchmark") as a risk

6

management metric to identify situations where there may be elevated risk in the Fund's portfolio. The Fund also uses the Benchmark for performance comparison purposes. Details of the Fund's performance relative to the Benchmark are available in the Fund's key investor information documents, the latest audited annual report and any subsequent semi-annual report. Reference to the Benchmark is for illustrative purposes only. The majority of the investments made by the Fund will be components of the Benchmark but may have different weightings to the Benchmark. There is no guarantee that the Fund will outperform the Benchmark.

CREDIT RESEARCH

The Adviser will perform its own credit analysis in addition to using Recognised Statistical Rating Organisations and other sources, including discussions with the issuer's management, the judgment of other investment analysts, and its own informed judgment. The Adviser's credit analysis will consider the issuer's financial soundness, its responsiveness to changes in interest rates and business conditions, and its anticipated cash flow, interest or dividend coverage and earnings. In evaluating an issuer, the Adviser places special emphasis on the estimated current value of the issuer's assets rather than historical costs.

DIVERSIFICATION

The Company invests on behalf of the Fund in securities of many different issuers, industries and economic sectors to reduce portfolio risk.

ECONOMIC ANALYSIS

The Adviser will analyse current developments and trends in the economy and in the financial markets. When investing in lower-rated securities, timing and selection are critical, and analysis of the business cycle can be important.

FEDERATED U.S. TOTAL RETURN BOND FUND*

Investment Objective

To provide total return over time.

Investment Policy

The Company pursues the investment objective of the Fund by investing primarily in U.S. dollar denominated, Investment-Grade, fixed-income securities of U.S. issuers. In addition, the Fund may invest in highyield, non-U.S. dollar denominated, and emerging market fixed-income securities when the Adviser considers the risk-return prospects of those sectors to be attractive.

The Adviser expects that, normally, no more than 15% of the Fund's net assets will be invested in securities that are rated below Investment-Grade; however, the Fund may from time to time invest up to 25% of its net assets in Noninvestment-Grade debt securities (otherwise known as "junk bonds" or "leveraged loans") when, in the opinion of the Adviser, such investments are attractively valued relative to other types of debt securities. The amount of any unhedged, non-U.S. dollar denominated, fixed-income securities and

non-U.S. dollar currencies in the Fund's portfolio will normally not exceed 10% of the Fund's net assets. The maximum amount that the Fund may invest in non-U.S. dollar denominated, fixed-income securities and non-U.S. dollar currencies is 20% of the Fund's net assets. Up to 5% of the Fund's net assets in unrated securities may be purchased if such securities are of comparable quality to Investment-Grade, based on the Adviser's credit assessment that the security is comparable to Investment-Grade. If, after the time of purchase, a security is downgraded below InvestmentGrade, the security may continue to be held if the Adviser believes it would be in the best interest of Shareholders to do so; otherwise, the security will be sold.

The Adviser seeks to enhance the Fund's performance by allocating relatively more of its portfolio to the sector that the Adviser expects to offer the best balance between total return and risk and thus offer the greatest potential for return.

When pursuing a strategy of investing in non-U.S. securities, the Fund may buy or sell non-U.S. currencies in lieu of or in addition to non-U.S. dollar denominated, fixed-income securities in order to increase or decrease its exposure to non-U.S. interest rate and/or currency markets.

The Adviser actively manages the Fund's portfolio seeking total returns over longer time periods in excess of the Bloomberg Barclays U.S. Aggregate Bond Index ("BBAB"). The BBAB is a composite index of the U.S., Investment-Grade, fixed-rate bond market, represented by the following sectors: government and credit securities; agency mortgage pass-through securities; asset-backed securities; and commercial mortgagebacked securities. There can be no assurance that the Adviser will be successful in achieving investment returns in excess of the BBAB. The Adviser utilises a four-part decision making process, focusing on: (1) duration; (2) yield curve; (3) sector allocation; and (4) security selection. Specifically:

? First, the Adviser lengthens or shortens portfolio duration from time to time based on its interest rate outlook. "Duration" measures the sensitivity of a security's price to changes in interest rates. The greater a portfolio's average duration, the greater the change in the portfolio's value in response to a change in market interest rates.

? Second, the Adviser strategically positions the portfolio based on its expectations for changes in the relative yield of similar securities with different maturities (frequently referred to as a "yield curve"). The Adviser tries to combine individual portfolio securities with different durations to take advantage of relative changes in interest rates. Relative changes in interest rates may occur whenever longer-term interest rates move more, less or in a different direction than shorter-term interest rates.

? Third, the Adviser pursues relative value opportunities within the sectors in which the Fund may invest, which are the "core" sectors of the debt market (government, corporate, mortgage-backed,

* This Fund is closed to new subscriptions and is in the process of being terminated. 7

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